Edelweiss Financial Services will transfer wholesale loans worth Rs 2,000 crore to Alternate Asset Fund for real estate completion financing as it shrinks corporate credit portfolio by 50-60 per cent over the next two years.
Its corporate loan book stood at over Rs 16,100 crore at the end of September 2019. Out of this, the wholesale book comprised of Rs 11,000 crore and balance was structured finance portfolio.
Rashesh Shah, chairman and chief executive, EFSL said it – the deal with Korean Investor for Alternate Asset Fund -- is very timely as a lot of real estate projects (economically viable) but have been suffering from last mile financing. This gives liquidity window as some of the current loans would get transferred to this Alternate Asset Fund (AIF).
Last week, Edelweiss Alternative Asset Advisors (EAAA), unit of Edelweiss group, and South Korean Financial services conglomerate Meritz Financial Group, inked a pact to start last mile financing platform. The platform will house funds that will buyout existing residential real estate loans and provide requisite completion financing to good quality, commercially viable projects.
The transactions will happen on arms-length basis and AIF would acquire portfolio from other lenders also, a senior company executive said.
The company expects corporate book to come down by 50-60 per cent in the next two years. Gradual rundown of the Corporate Credit will generate liquidity which will finance Retail Credit growth.
The Costs of maintaining liquidity will reduce as the book becomes more granular the credit risk will be more granular since the book will be predominantly retail credit.
Shah said “on wholesale side strategy continues to be same of de-growing the book in two ways – organic degrowth and other is what we did with Meritz (Korean investor). We will do few more of those”.
The company has been de-growing the balance sheet. Second, the cost of funds still remains elevated as transmission is not happening. With this cost of funding we do not want to grow very aggressively.
Book is going through a down cycle and is expected to reverse in next 3-4 quarters. Asset Management vehicles like AIF have proved to be a better source of long term stable and flexible capital for non-granular, high yield credit opportunities in the longer term.
The funds will come from global investors and domestic HNIs looking for duration and yielding assets. The company is accelerating the move of Corporate Credit from NBFC to fund form. The Corporate Credit business is being transitioned to the Asset Management model. Current drag on profitability is due to higher credit costs which will continue to impact profits for next 3-4 quarters, Edelweiss said.